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Despite Safety Woes, Honda Earnings Climb 20%

Weak yen offsets cost of airbag recall.

by on Jul.31, 2015

Honda's automotive unit helped the company to strong first-quarter profits despite setbacks from Takata's faulty airbags.

Despite being slammed by the ongoing recall of Takata airbags, Honda Motor Co. was able to deliver a 20% jump in earnings for the first quarter of its 2015 fiscal year.

The cheap yen – which has dropped almost 20% against the dollar over the past year – helped drive Honda’s April-June net income to 186 billion yen, or $1.5 billion. A year ago, the maker reported 155.6 billion yen in net income, or about $1.3 billion.

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On a per share basis, Honda handily outperformed the 65 cent average forecast of the Zacks Consensus Estimate with an 84-cent, or 103.22-yen, per share number.

Honda saw quarterly sales rise nearly 16%, meanwhile, to 3.7 trillion yen, or $29.9 billion. That also exceeded the Zacks consensus forecast of $27.35 billion.

Honda is expected to continue feeling the pinch from the Takata airbag problem for some time. It has recalled more vehicles due to the defective systems – blamed for at least eight deaths and 100 injuries so far. All told, Takata’s problems have led to the recall of 34 million vehicles in the U.S. alone, and 57 million globally. Worldwide, that includes 24.5 million vehicles produced by Honda, which has a financial stake in the supplier.

Unlike General Motors and Fiat Chrysler, which each broke out recall-related costs in their latest quarterly earnings, Honda only said the Takata issue will contribute to the $484 million in sales and administrative expenses it projects for the full fiscal year.

The maker has been offsetting those added expenses thanks to a weak yen that has tumbled from 102 to 120 to the dollar over the past year. The shift in exchange rates translated into a $3 billion boost in sales.

Meanwhile, Honda has also scored strong sales with new models such as the compact HR-V crossover-utility vehicle, and the redesigned Pilot. It has also seen an improvement in the performance of its Acura brand.

(Acura chief Mike Accavitti unexpectedly leaves despite delivering sharp upturn in sales. Click Here for more.)

Honda, which produces a wide range of motorized products, from portable generators to its new Honda Jet, still depends heavily on its automotive business. The car side generated $21.85 billion in revenue, an increase of 14.4% year-over-year. By comparison, motorcycle sales were worth $3.86 billion, a 10.8% increase.

(Click Here for more about the higher tech 2016 Honda Accord.)

Financial services also gained ground, revenues jumping 30% for the fiscal first quarter, to $3.87 billion.

(To see more about Honda’s new CEO’s plans for a turnaround, Click Here.)

Honda said it is sticking with earlier forecasts for the full fiscal year ending next March 31. That would see a 4.4% increase in vehicle sales, to 4.7 million, or slightly less than Fiat Chrysler. It is also predicting net income would climb 3%, to 525 billion yen, or $4.2 billion at the current exchange rate.

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